The Inside Edge
With house prices continuing to dip and stagnate, you may be tempted to enter the market as a house-buyer. However, it seems that only a few potential buyers are taking the plunge.
This leaves sellers frequently stuck between leaving their house unsold or accepting an offer which falls below their hopes – at the end of 2010 research indicated that sellers were having to knock up to 3.2% off their original asking price, amounting to £7500 on an average property.
So, is now a good time to buy? There are a few factors to take in to account:
1. State of the economy
The government believes that it has the appropriate measures in place to tackle wider fiscal issues over time, thus helping the economy to stabilise.
However, ongoing cuts to the public sector may hold workers back from making big financial commitments, meaning that growth in the economy may be slower than hoped.
Will house prices go any lower? It is very hard to say, and the bottom of the market is normally only realised when prices are well on the rise. However, remember – even if you did manage to hit at the bottom of the market, would the house be the one you want in the right area…?
2. Availability of mortgages
During the credit crunch, many financial providers withdrew from lending altogether, but the number of available mortgages is now recovering and, due to stagnant low interest rates, prices of mortgages have fallen too.
However, the number of mortgages available for 10% deposits or lower remains small, meaning that first time buyers may need to find larger deposits than they would have required a few years ago.
The increasing availability of mortgages is not matched by the number of mortgage approvals, which has declined in the latter half of 2010 – it seems that lower prices are not enough to convince borrowers to buy, remortgage or move house.
In addition, those on a lifetime tracker mortgage, if taken out more than 2 or so years ago, may be enjoying low repayments (and the opportunity to overpay their mortgage) so are not likely to be looking to remortgage any time soon. Lifetime tracker mortgages are not widely available today – if you can find one and have a 40% deposit, you will start on around 2.5%, although with only a 10% deposit, you can expect to pay close to 5%.
Saffron Building Society currently offer a range of mortgage products, covering fixed rate mortgages, discount mortgages, tracker mortgages, variable mortgages and buy to let mortgages.
3. Interest rates
It’s clear that rates will have to increase – they can’t get much lower! The question is: when?
Some analysts believe that Bank of England base rate will remain at or close to the current 0.5% level throughout 2011 and may not see any increases until 2012.
However, if you’re looking at a tracker mortgage or lifetime tracker mortgage, you will need to test your ability to repay should interest rates hit 5%, 7% or even 10% in the next 3 years, just in case.
Fixed mortgages are a way of safeguarding against dramatic interest rate rises, but they are priced to allow for rises above the current historic lows. If considering a fixed rate mortgage, also remember that you may wish to remortgage after 2, 3 or 5 years.
The factors above are keeping many first-time buyers off the property ladder, creating a high demand for rental properties. This demand puts landlords in a position of power, and should rates rise, rent rises could follow.
Ultimately whether it is a good time to buy or not is more down to your personal circumstances than anything else. Do the sums, factor in any potential risks and hopefully the answer will be clear.
However, we remain a nation of aspirant homeowners and, despite the shocks of financial turmoil, property is likely to remain an attractive investment for us, and certainly the only one that you can live in!
Saffron Building Society is a regional building society and has been providing savings accounts and mortgages to communities in the East of England for over 160 years. They have over 120,000 members and are the ‘most followed’ Building Society on Twitter! Visit us at www.saffronbs.co.uk or follow us twitter/SaffronBS